As a business venture, vending machines may be one of the least expensive ways to deliver products to customers — and this may be a good time to enter the business. In the US, the vending machine market is estimated to be worth $36.5 billion in 2020, which marked an almost 15% decline in revenue due to lower foot traffic and sanitation concerns brought about by the coronavirus pandemic. But as businesses open back up and the economy recovers, this could be the ideal time to get in the game.
Getting Started With Your Vending Machine Business
The following steps can walk you through your first steps of starting a vending machine business:
1. Choose what kind of vending business you want.
There’s no one way to start your vending machine business, and each of your three main choices comes with pros and cons.
- Start from scratch. You buy the machines, then scout and contract new locations, giving you the most hands-on control of your options.
- Buy an existing business. If you can find an owner with a set of vending machines in your area, buy their route and inventory. An established business means established income, but you may need to renegotiate the location contracts.
- Buy a franchise. Vending machine franchises cover a variety of vending products and have buy-in minimums and a set of rules and requirements to continue your vending contract.
2. Choose what you want to sell
This is a great time to put together a business plan. Research your area’s market and determine how the vending machines perform and what’s missing.
The most popular and profitable vending machines sell sodas and other beverages, which means the market can be saturated. If yours is, bulk toy machines, retail offerings, laundry supplies, or even an ice machine might be a better fit for your area.
3. Look into permits, licensing, and insurance.
Before you do anything, ensure you have all the proper licenses and permits to run your machines in the area.
- Employer Identification Number (EIN). Your first step should be to fill out Form SS-4 with the IRS to get a free EIN. You’ll need it to apply for all your other licenses and permits.
- Business license. Every state requires some business license, but the type of licensing you’ll need depends on your business’ size and whether you need office space. If you expand into multiple states, you must register your business as an LLC in each one.
- Permits. The permits you need depend on the kind of vending you do. For example, if you sell fresh food out of a refrigerated unit, you’ll need a permit from your county health department, and you may have to pass a class in food handling to get it. Most states also require a permit to meet sales tax requirements.
- Commercial insurance. The best way to protect yourself and your business from crime and liability lawsuits is with insurance. The insurance requirements in your area may vary, but you should consider at least the following three forms of coverage:
- Liability coverage for injury, illness, or any other potential issue where you could be found at fault
- Auto coverage for the vehicles you use to transport your machines and inventory
- Property insurance to cover theft and vandalism, your inventory stock, and any office equipment you use
And, as with any insurance policy, compare carriers to ensure you’re getting the best deal for the coverage you need.
4. Find the best locations for your products.
Some vending machine placement is obvious. For example, if you’re selling laundry soap, you’ll want to place your machine in a laundromat or residential building laundry facility. But other machines may not be that simple. Finding the best location for your machine can mean the difference between making $5 a week or hundreds.
5. Establish a budget and get the equipment and supplies you’ll need.
Depending on your budget, you can decide whether it would be better to lease your vending machines, buy used ones, or buy new ones. Then you need to source your inventory and determine how much you need to store to keep your machines running.
6. Sign contracts with business owners at your locations.
You’ll most likely have to offer a percentage of your sales as a commission to the businesses that house your machines. This commission can range anywhere from 7% to 25%. Your contract should also include protections for you, such as what to do if the location proves unprofitable, how to deal with theft and vandalism, and expectations for restocking.
7. Place and stock your machines and get started.
Once you celebrate your new business’s opening, stay current on your taxes, licenses, and other compliance requirements. You also need to track your restocking needs and research new locations for future expansion.
Pros and Cons of Starting a Vending Machine Business
- Low startup costs. Compared to many other business startup ideas, a vending machine business is relatively inexpensive to start. New machines can cost between $2,000 and $10,000 to purchase outright, with no office or retail space to rent and low stock levels to maintain.
- Simple to scale. Increasing the size of your business is as straightforward as adding machines and locations. But you don’t need to do that until you’re ready, and you can add one or two machines at a time to limit your risk.
- Low ongoing expenses. You may be able to restock and maintain the machines yourself for a while and only hire as needed when you add machines and locations.
- Difficult to negotiate locations. Location is critical for vending machine success, and existing business owners tend already to have a firm foothold in the most lucrative positions.
- Highly competitive. If you’re not purchasing an existing business that already has vending machines in prime locations, be prepared to use your negotiation skills and establish yourself in what can be an already saturated market.
- Maintenance and refilling. While vending machines can do a lot of the work themselves – administering refreshments and giving change without human help – you will still need to regularly attend to your machines to ensure you don’t miss out on profits.
What costs should I budget for?
A vending business typically doesn’t cost as much as other businesses, but you can still expect the following expenses:
- Franchise fees, if applicable
- Vending machines, either purchase prices or monthly leases
- Commercial Insurance
- Permit and license fees
- Location commissions
- Personnel, either employees or business services, such as accountants
Types of financing for vending machine startups
If this is your first time owning a business and you need to secure financing, make sure your personal finances are in order. Lenders offering startup loans will look at your credit scores to determine your risk and often charge higher interest rates. So explore all your options to determine which financing option will work best for you.
- Small Business Association (SBA) loan. As a government-backed loan, an SBA loan comes with some paperwork and can take a little longer to close. But if you’re eligible, this loan also comes with the lowest rates available.
- Franchise financing company. If you decide to buy into a vending machine franchise, the franchise registry can help you research franchise brands and over 9,000 lenders specializing in franchise financing.
- Community bank loans. Getting financing from your local community bank can be the start of a longer-term relationship that can be helpful to your business over the long term.
- Business credit cards. With a vending machine business’s relatively low startup costs, you may consider using a business credit card to finance your expenses. The interest rate may be higher than a traditional loan, but the perks and rewards of your card may make up the difference.
Vending machines can be a significant first business venture, allowing you to learn the ropes without needing a lot of capital. This kind of business can also be a great sideline with good location contacts, or you can scale up to start a vending machine empire. And to make sure you make the best decisions possible, check out our small business resources guide.
This article was originally published on Finder here.
Jason Butler is the owner of My Money Chronicles, a website where he discusses personal finance, side hustles, travel, and more. Jason is from Atlanta, Georgia. He graduated from Savannah State University with his BA in Marketing. Jason has been featured in Forbes, Discover, and Investopedia.